General Mills, Inc.

Good morning and welcome to General Mills' fourth quarter fiscal 2024 earnings conference call. All participants are in a listen-only mode. After the speaker's remarks, we will have a question and answer session. To ask a question, please press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Jeff Seaman, Vice President of Investor Relations and Treasurer. Go ahead.

Thank you, Julianne, and good morning, everyone. Thank you for joining us today for our Q&A session on our fourth quarter and full year fiscal 24 results. I hope everyone had time to review our press release, listen to our prepared remarks, and view our presentation materials, which we made available this morning on our investor relations website. It's important to note that in our Q&A session, we may make forward-looking statements that are based on management's current views and assumptions. So please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which we may be discussing on today's call. I'm here this morning with Jeff Harmoning, our chairman and CEO, and Kofi Bruce, our CFO. So I think we can go ahead and get to the first question. Julianne, can you please get us started?

Certainly. As a reminder, to ask a question, please press star followed by the number one on your telephone keypad. Our first question will come from Ken Goldman from JP Morgan. Please go ahead. Your line is open.

Hi. Thank you very much. I appreciate it. I wanted to make sure, rather, that I understood the dynamics in international. It's a bit of a specific question to start, but the commentary and the prepared remarks about consumer challenges might indicate that volume would have been more pressure than price mix. But it was the latter that was down by a greater degree. So I'm just curious if you can walk us through the dynamic there and if there were any unusual puts and take this past quarter, and then I have a broader follow up.

And thanks for the question. This is Kofi. So as you know, our organic sales were down 10% in international and Q4. A bit more than half of that came from a reclassification from net sales to cost of goods sold in Q4, an adjustment that was immaterial to the company's full year results, but obviously important in the quarter for the segment. The rest of the decline in international was really a function of the difficult market conditions in both Brazil and China. Our Brazil performance, specifically both the consumer environment and value challenges at the shelf, as well as the customer environment where customers were reducing inventory levels pretty significantly versus last year. And then China, after a strong start to the year, we saw a real souring or downturn in consumer sentiment in the quarter.

um that that had you know a negative impact on our shop traffic for haagen-dazs and our premium dumpling business so that that's oh sorry yeah thank you i'm stepping on your words i apologize but i appreciate that the the um the follow-up is and and thank you for all the detailed guidance you always provide from top to bottom in the p l um every year i'm curious if you could break out for us a little bit of the cadence of the top line in EPS growth this year, and in particular, if there's any considerations as we think about modeling the first quarter?

Yeah, I think the, you know, we won't get too detailed other than to just note that our Q1 results, we would expect to trend below the balance of the rest of the year, primarily driven by, you know, higher levels of investment as we step into the year with a focus on improved volume. And then obviously the comparison against our strongest quarter performance in fiscal 24.

Our next question comes from Andrew Lazar from Barclays. Please go ahead. Your line is open.

Great. Thanks. Good morning, everybody. Good morning. Good morning, Andrew. Maybe, Jeff, to start off, I know in the prepared remarks, you discussed sort of a clear mission to drive better volume results through reinvestment, which I know is contemplated in your outlook for 25. And you mentioned prominently the need to improve sort of the value equation for consumers, you know, even mentioning optimizing price points in certain areas. a 20% increase in coupon spending sort of as examples. And I know that consumer measures value in lots of different ways, not just price. So I was hoping to get maybe a better sense of how the mix of incremental spending for 25 is sort of broken out across, you know, what would you consider higher quality sort of brand equity building versus let's say more trade or price oriented spend, particularly as this is such a sort of a hot button topic among investors right now.

Yeah, thank you, Andrew. That's right. I mean, improving value is really the number one mission we have to get competitiveness. If I take a step back and look at this past year, you know, our categories in terms of volume performance and pound performance improved through the first half of the last year, which was, they were down 2.4% in terms of volume, our categories to up half a percent in the fourth quarter. And I think that's important because as we had talked about previously, you know, there are a few events in the back half of our fiscal year, which we thought would improve category performance. And they did, gradually, they did.

And

And that really is the lapping of pricing from a year ago, lapping of SNAP benefits and the on-shelf availability of private label and some other smaller brands. And so that indeed took place. And so the job for us to do now is to increase our level of competitiveness. And the fact is that inflation has been higher for longer than many people assumed it would be, not in food necessarily. Actually, food inflation is actually coming down. But if you look at the broader macroeconomic environment, we're still seeing inflation of 3% to 4% in the broader environment. So the job to do is create more value for our consumers. As you rightly point out, that value can take place in a variety of ways. And I guess I would start at the point of brand communication. And The fact of the matter is we will have a meaningful increase in the amount of spending we have on consumer spending next year. You've probably done the math and seen that our productivity levels are higher than what we see for inflation, so our gross margins should be okay. And so the job to do then is to spend the money there wisely. And we start with brand communication. And so we'll have a meaningful increase, but also, you know, again, some really good news. You know, I start with pet food and, you know, wilderness. We have some new advertising coming up next week. I just saw it yesterday. It's fantastic advertising. We've already gotten life protection formula back to growth and tasteful. So now wilderness is a job of doing pet food. If you look at what we're doing in cereal, another big global business for us, we've got great taste news coming in our cereal category. The Kelsey Brothers are highlighting that in the first quarter, but we've got more coming in the second and third quarter. We're bringing the Doughboy back after a few years. And, you know, private label, they don't have a Doughboy, we do. And not only is he coming back, he's got all kinds of news to share about Flaky or Crust and things like that. So we feel great about that. We're sponsoring the Olympics in many countries, and Totino's has some good marketing. So we feel good about our brand investment, but also it comes down to the product themselves. We've got really good product news, probably twice the taste news that we did a year ago. In our categories, taste is really king. And so whether that's flakier biscuits or cheesier Annie's mac and cheese or fudgier Betty Crocker brownies or reducing sugar in our kids' cereals in K-12s, You know, those are all kinds of great taste news. And our new products should be up somewhere around the neighborhood of 40% where we're investing in new product activity and really good ones on our big brands. So Fruity Cheerios in the cereal category, Mott's Breakfast Bars, which are off to a great start so far this year, as well as Nature Valley Lunchbox, which is allergy-free. We know that moms really like Totino's, you know, breakfast bars. breakfast rolls. So we've got really good innovation. So those are a lot of ways that we can add value, variety packs, things like that. But also, we're increasing our couponing by about 20% or so in the beginning of the year. And we have found, because we have a lot of first-party data, which differentiates us from many other manufacturers, we can target effectively with good ROIs. And not every manufacturer can do that. But we have the ability to do that. So we're increasing our coupon spending. And we have the research that tells us that it's highly effective when we do that. So we'll do that. And are there some price points we have to sharpen? There are, but there always are. We talked about in pet food, it's wet pet food. We had to get under a price clip, but we didn't have pricing options in other places. And so we feel good about the amount of value that we will create for consumers. And that really is job number one as we look at next year.

Thank you for that. And then just a quick one, Kofi. The commentary around HMM for fiscal 25 versus cost of goods inflation suggests, as Jeff highlighted, some gross margin flexibility to reinvest. Given the amount of reinvestment you're planning, not just at SG&A, but that reinvestment that goes against gross margin, So does your plan, I guess, anticipate that you can at least protect, if not expand, gross margins a little bit for the full year? Or could there still be some gross margin pressure for the full year, given kind of what you need to do across both sort of trade and consumer? Thank you.

Great question. Appreciate the question, Andrew. So I would say we've got enough flexibility that we would see a modest amount of gross margin expansion, even with the levels of investment. And the key here is, as we look at the business, we're going to play flexibly with an eye towards investing in growth-driving activity, some of which Jeff did an eloquent job of listing off. Thank you. You bet.

Our next question comes from Brian Spillane from Bank of America. Please go ahead. Your line is open.

Hi. Thanks, Operator. Good morning, Kofi. Good morning, Jeff. I have just one question, and I guess it's come in a couple of different angles to us this morning. And really, the starting point is just, have you guided low enough for fiscal 25? And I say that in the context of You know, there's some reinvestment, right, or increased investment, I should say, that's implied in your plan for this year. You know, if we look back over the last four quarters, you know, we've been kind of waiting for a term to come around the corner. And that's just General Mills. I think that's true across the whole group. And so it seems like, you know, there's just more uncertainty, you know, in planning the business this year versus most. And just just, you know, given the opportunity, right, to give yourself, you know, I guess more cushion or more actually more than that, just more potential money to spend back. Why not take that opportunity now?

Yeah. So, uh, so Brian, thanks for the question. The, uh, you, you talk about more volatility and uncertainty. I said that for like each of the last five years. So I'm waiting for that, waiting for the year where we don't have volatility and the market does continue to evolve. So there's no question about that. Um, you know, obviously we, we think we've given ourselves, um, you know, enough cushion here without, without being, um, unduly conservative. And, um, The market, you're right, the market is, it does continue to evolve. But as I said, we're, you know, we've got really good marketing support. New products are up. We've got really good news on our core brands. And so, you know, my expectation is that we would improve our volume performance this coming year, which was down 3% this current year. We would improve our volume performance. across our different segments this year. So I know that each of our operating segments, whether it's North America retail or food service or international or pet, are committed to improving our volume performance, our competitiveness. And I'm confident with the level of activity that we have. and the news that we have that we can actually do that supported by gross margins that are already good, that are back to pre-pandemic levels already. And as you say, our productivity outstrips what we see as inflation. And so reinvesting some of that to make sure that we have the fuel we need to drive the growth. And we're not counting on a change in the environment necessarily to drive our growth. It really is a change in our competitiveness And that's within our control. And so we feel good about our ability to do that.

Thanks, Jeff. You know, maybe just a quick follow on that is, as you've planned this year, what's your expectation on competitiveness? Meaning, you know, do you expect competitors to make similar moves? And just how are you anticipating how the competitive environment would set up this year? Again, given just, you know, how dynamic things are.

Yeah, I certainly can't speak for my competitors, but we're all looking for more growth. And what's been interesting is that the environment has been exceptionally rational, and it's hard for me to see that changing. And the reason I say that is because, I mean, we still have some level of inflation. I mean, we have 3% to 4% inflation. And so in that kind of environment... you know, absent, you know, leading levels of productivity like we have, it really begs for an environment that continues to be rational. If you look at the last 12 months, promotional spending is up, frequency ups a little bit, depth of discount is up a little bit relative to the year before. But if you look before pandemic, it's kind of back to that, back to that level of promotional intensity. And as I started out, I think it was Andrew asked a question about value. There are a lot of ways to create value for consumers. And we see that, I'm sure our competitors do too. And so we'll be pulling all the levers we can to make sure that consumers know the value of our big brands. And, you know, a lot of that gets back to the marketing and the product news and everything else. Okay. Thank you.

Our next question comes from Steve Powers from Deutsche Bank. Please go ahead. Your line is open.

Yes. Hi. Good morning. Apologies if you hear construction. There's someone who started drilling as this call started behind me. I guess the question I have to start is, you talk about a roughly equal contribution from price and volume through the year at the company level, which I take to mean sort of flat to slightly positive in each case. I guess, is there any deviation from that as you think about the sequencing through the year or across the different business segments? Or do you expect that sort of roughly equal contribution to be representative across the totality of the enterprise.

Yeah, as we look at it, by the way, I can't hear the drilling in the background, Steve, but as we look at it, first of all, you would talk about price and volume rate relatively the same as price mix. I think that mix piece is you know, is really important as we look at it. I wouldn't expect undue differential performance from any one of our segments. So, it's not as to say we're looking for, you know, lots of one thing in one segment, lots of something in another segment. Really, the job to do is really volume growth, you know, across the different segments. And I think we have opportunities to improve. Even in food service, which did really well, we have opportunities to improve, you know, across the board. In terms of the sequencing, I guess my only comment would be as you look at our first quarter of last fiscal year, which in terms of sales growth was our highest sales growth quarter, you see a lot of pricing in that quarter. We're going up against that as we go into the year ahead. And so that probably has an impact on what we see on price mix in the first quarter, which as Kofi said, along with some reinvestment makes the comp in our first quarter the toughest of in the year, I would expect gradual improvement as we look at our sales and profitability over the course of the year. And gradual doesn't mean it happens even every quarter, but gradually over the course of the year with Q1 being the toughest. I would say that's especially true in North America retail, where the count from a year ago was quite good. We had a really nice Q1 at North America retail last year.

Yeah. Okay. Great. Thanks. And thanks for the clarification as well. You know, on the... Kofi, maybe going back to where you started or Ken started the call on international, you talked about some of the challenges in Brazil and China in the moment. I guess any perspective on how you expect those regions, those countries, those markets to develop as the year progresses, just kind of what you've embedded in terms of contribution in 2025?

Yeah, to just pick up on Jeff's last point, we are expecting volume improvement in all of our segments. But as we look at international, I think the critical thing for us is Brazil. We certainly see improvement off of this year's performance and are expecting that. Similarly so with China. And then continued strength off of performance in EUAU and our GEMS markets, which performed really well this past year. Thank you very much.

Our next question comes from Alexia Howard from Alliance Bernstein. Please go ahead. Your line is open.

Hello. Good morning. This is Connor Snigley. I'm stepping in for Alexia Howard. Jeff, I'd like to ask about your ready-to-eat cereal segment. Measured channel data suggests you've experienced a bit more challenged market share dynamics at a time when promotional spend has increased at one of your competitors. Can you talk about how you think about this segment in 2025, and do you continue to see rational pricing behavior, or is there a concern on this front? Thanks, and I'll pass it on.

I would, you know, we've seen rational behavior in cereal. I would, I would expect that to continue. You know, our focus is, is primarily on our game and our competitors games. We honestly, we feel like we have the best brands in the category. The key job for us to do in cereal is get back to playing our game. We had good new product innovation last year. We had the top five new products. Actually, I think some of our product innovation this year is better than we had a year ago. I referenced Fruity Cheerios in the first half. We have some good new product innovation coming in the second half, but even more important than that, is a lot of the news we have coming on our core brands and our messaging, as I talked about with the Kelsey brothers. But I also think some of our merchandising, like in the back-to-school period, making sure we have a big program with box tops, which I'm excited about rolling out, and some taste news we have coming in the second half of the year on some big brands, which I promised the brand teams I wouldn't talk about on this call, but I'm excited about coming. And so our job really is to get back to the core growth on our big cereal brands, which is really good news, and continue the innovation. And as good as our innovation was this past year, and I thought it was quite good, I think our innovation this coming year has the opportunity to be even better. And early returns would suggest that that will be pretty good.

Our next question comes from Tom Palmer from Citi. Please go ahead. Your line is open.

Good morning, and thanks for the question. I appreciate, based on your earlier comments, you might not want to be overly specific here, but I guess I'll give it a try. If we exclude the inventory reductions and trade accrual, I think organic sales growth was down around 2%. Should we look at this as kind of a starting point as we enter the year, or are there other considerations we should be thinking about as we move into the first quarter?

Yeah, appreciate the question. So let me see if I can step back and just if you'll give me a point of privilege here, I'll try to give you a little bit broader perspective starting at the enterprise. and then drilling down to pet and North America retail. So while we saw the slowdown in organic net sales, I think the critical thing here is as we look at our measured retail sales, they're pretty consistent as we move from Q3 to Q4. So as you rightly noted, the big point on the front is three points of headwind sales. from the comparison on the trade expense phasing from Q3 or Q4 of fiscal 23. At the enterprise level, we also saw a modest decline in retailer inventory in NAR and PET in Q4 versus Q3 where we had a net tailwind. And then I think third and important, I reference again the point I made on international that, you know, in Brazil we had a an adjustment to net sales that moved to COGS, which was worth about a point of drag on its own. So an aggregate, about five points of drag from those three factors as you peel it back. And then as you look at it on a segment basis at NAR, that trade expense comparison is about four points of drag. We also had, we saw the retailer inventory adjustment impact NAR At about a point of tailwind flipping to or point of tailwind in the corridor Q4 versus a point of headwind in Q4. And then we also benefited in Q3 from some weather patterns in NAR. Then as we looked at PAT, we had about two points of headwind from the trade expense comparison. We also saw retailer inventory reductions to Q4 versus Q3. And then we did have a modest amount of headwind as well from skew losses in a few key places. So in aggregate, that kind of gets you the picture. I think the critical thing here is the read-through for you as you're thinking about how to look at the quarter. Nielsen, Q3 to Q4, roughly in line.

Got it. Okay. Thank you. And then in the presentation, you listed M&A above share repo in terms of capital allocation priorities. I had kind of two pieces here. First, to what extent does the 3% share count decline in guidance assume that free cash flow in excess of the dividend is deployed for share repo? versus other uses? And then second, and look, I know you've been asked plenty about this over the past year, but could you give us an update on your M&A criteria and appetite from a size standpoint? Thank you.

Sure, sure. So I think I'd first start by acknowledging that our capital allocation priorities have been pretty evergreen. So I think the first is clearly we want to make sure we have and allocate investment for capital spending internally for growth. That's roughly 4% is kind of the top number. We average around 3.5% if you look at the last handful of years. Second, that we're allocating capital for increasing our dividend roughly in line with our after-tax earnings. And again, we've paid a dividend uninterrupted for 125 plus years. And then third, as you rightly pointed out, M&A. And again, M&A is both episodic and it's not something we build into the plan. But generally, as you look at our M&A patterns, you know, unless we've done something big, which is pretty rare, last big acquisition was Blue Buffalo. Most of the acquisitions we do are kind of in that one to one and a half billion dollar price range, which we can easily accommodate with a modest adjustment in our share purchase patterns. So share of purchase remains the most discretionary element, and obviously we will make changes to our share of purchase expectations as we identify and act on M&A opportunities. To your second point around criteria for M&A, you know, obviously the critical filter for us, we start first with our strategic priorities which leads us to to look at critical occasions which would get us to priorities around a breakfast and convenience meet convenient meals and snacking as well as obviously pet food and you know i think the the criteria for us anchor around places where we can add value leverage points around our capabilities that will allow us to unlock faster growth but also improve margins as we as we execute transactions So we've been, you know, candidly working with our always-on M&A capability throughout the cycle. We continue to look aggressively at opportunities. At the same time, we've remained very disciplined and have very strong filters in terms of both returns and value creation.

All right. Thank you.

Our next question comes from Matt Smith from CIFL. Please go ahead. Your line is open.

Hi, good morning. I wanted to dive in a little bit on the profit performance in the pet segment. You were solidly in the mid-20s, even with the volume decline in the quarter. I know you talked about some increased investment behind wilderness as you tried to stabilize that business and get it back to growth. But is this a sustainable margin performance in the fourth quarter that we should look to as we look at fiscal 2025? Sure.

Yeah, let me start. I think we benefited this year. both a more stable supply chain environment and our ability to drive higher than expected levels of HMM, even in the face of the volume declines we saw. We continue to have and capitalize on opportunities both to internalized production that was previously external but also to drive hmm that was was frankly less available when we were struggling to to supply um in the in the the supply chain disruption period so we feel good about sort of the the the the exit point what i would you know what i think is critical as we look at the business right now is we're very focused on driving improved volume trends. So I think profitability, very competitive at the 20% plus level. I wouldn't expect that 24% is the level we would necessarily target. We continue to expect to be able to drive strong HMM. And much like we're doing at the enterprise, I would say our focus is going to be on reinvesting gross margin improvement back into the business to drive growth.

To back up what Kofi said, a year ago, we were challenged both on our gross margin and with our sales growth. And I'm really pleased with the Blue Buffalo team for the job they have done to restore the margin profile. And we've done a lot of work over the past year to do that, to get us back into a place where the margins over the last year are roughly 20% or so. And so now the job to do is to, and that's without volume leverage. And so now the job to do is to really improve our top line performance. And, you know, we feel good about what we've done on life protection formula. We're going to double down on that. We feel good about our tasteful cat business. And then the last quarter, we put some more advertising on that. We've seen that business get back to growth. And so we're going to we're going to put more fuel on that. And now the job to do the next job to do is on wilderness. And we've been talking about it for a little while, but we're put on advertising on here and in July and good levels of advertising behind really good messaging. And so that really is the job to do. And to the extent that we can get blue buffalo back to growth, I mean, I think the rest of it will flow quite nicely. We do have good productivity, but the real job to do is maintain these really good margins while accelerating our top line performance.

Thank you. And just a quick follow-up, you talked about some distribution losses in the pet division. Any more detail to add to that? Is that something that remains a drag as we look at fiscal 25 that perhaps keeps volume growth a little less, a little tougher to achieve as we look into next year.

Yeah, we have, we've had some distribution losses on a little bit on trees and a little bit on wet pet food. And that was because, you know, during kind of the pandemic, there were some other competitors who couldn't supply as well as we could. And so we had some extra cell placement and that's rolling off. but it's really not our big flavors or our big customers. And so even with that, we've seen improved performance on it, increasingly good performance on our Blue Buffalo business in aggregate if you look at movement. And so even with that, you know, our expectation is for improved volume performance in the coming year for Blue. Thank you. I'll pass it on.

Our next question comes from David Palmer from Evercore ISI. Please go ahead. Your line is open.

thanks i'll um i'll just follow up on on pets for a second i know one of the big areas of focus was the specialty pet segment uh clearly it was a drag into into the fourth quarter do you you talked about in the prepared remarks about revenue growth for pet in fiscal 25 do you also see that that pet specialty segment also stabilizing and growing in fiscal 25

Yeah, so I'm not going to get into specific channel by channel, but since you asked, I won't avoid it completely, David. What I would say is that what I would see is an improvement in that channel. We've actually seen an improvement in the channel. Now the job for us to do is improvement in our own performance. It really is about wilderness and about getting our sizing right and about working with the retailers there to improve the performance of wilderness. By the way, they're in on it, too. We all want to improve the performance of wilderness, and so we're all rowing in the same direction. And so, you know, my expectation would be improved performance for us and the pest specialty channel. We'll see what that yields over time, but I feel as if we have the right actions in place to improve our performance in that channel, particularly with wilderness, which is the most important thing to improve.

And just a question on the baking segment. That seemed to be an area that did very well during COVID. You cited it as one of the areas that was most declining in this quarter. Are you seeing, I just wanted to get your your pulse on that segment and be consumer behaviors around that and make sure that it's not going to be an ongoing drag for you in fiscal 25. what do you how are you feeling about that segment and the consumer behaviors around baking and the the at-home occasions that would drive that i know it's a high margin segment for you and i'll pass it on thanks

Yeah, so let me start with at-home occasions. You know, at-home occasions are actually quite high. I mean, about 86 to 87 percent of food is now eaten at home. You know, given the challenges consumers are facing with inflation, we would expect that to continue. So I don't see a drag on category performance for at-home eating occasions. So that would be the first point. The second is, you know, the category itself in terms of volume has hung in there, you know, pretty well. It's our share position, particularly if you look at Pillsbury, that has been the challenge. And after many years of remarkable growth, this past year, you know, we saw a return of, you know, private label to the shelf, some smaller competitors, but mainly private label. And so this past year, I think, is going to be an anomaly. And I think the key for us is is really not a change in the environment. The key for us is our change in level of activity. And I tell you, our, our plans and dough are quite good. As I talked about, we're bringing the dough boy back, but also, but also we've got product improvements, taste improvements on, on things like biscuits, which I think will serve us very well. Uh, we have, you know, variety packs coming in, uh, and cookie dough with, with brands like Reese's and Oreo and monster cookies. And, um, So we have a really good plan and really good news to share on our Pillsbury business this year. And so it's really within our hands to get us back to growth on Pillsbury, and I feel good about our plans there. Thanks for that.

Our next question comes from Robert Moscow from TD Cowan. Please go ahead. Your line is open.

Hey, thanks for the question. Good morning, Jeff. Good morning. I wanted to know, you and a lot of your peers have shifted the emphasis more to volume, and I'm not denying the importance of it right now, but it just sounds different than the strategy that a lot of CPG companies have used over the years to create value through premiumization, convenience. That's been a way to improve margins and improve mix historically. Can you do both of these things at the same time? It seems like there's a lot of discussion on volume today, and I'm wondering if the consumer can still absorb or accept more premium offerings in this environment.

The, um, yeah, Rob, the, you know, I don't see it as a trade-off between volume and premiumization. You know, I think it's an and, you know, I'll, I'll take our blue Buffalo, which is, you know, a premium offering, but life protection formula has done particularly well, you know, behind really good marketing. And, um, And so really, that's one why I talked about value earlier, getting back to really good marketing and really good messaging on our big brands is really crucial. So I don't see a trade-off between getting back to volume and premiumization in the categories. I think it's an ant. Pillsbury is another example where it's a premium offering in the category, and we've got really good marketing against it. I think the reason you hear us talking about volume is obviously our volumes were down versus a year ago, and so that's really the job for us to do is to get back to that. And I think you're right to ask, but that doesn't mean that we can't premiumize. So those things are not mutually exclusive. And in fact, I think in many cases, they go together. The key is to make sure that the value that we offer, as we think about it, is commensurate with the brand itself. And so that's why you heard me talking a lot about the news we have on our big core billion dollar brands, because that really is going to be the key to our success. And we talk about value. A lot of people immediately go to price, and that certainly is a component, but it's not the component. If you think about it, when consumers feel pinched, one of the most important things they have to do is feed their families, and what they can't afford is waste, and the family has to really want it. And so you hear us talking a lot about case news and things like that in this environment. And so I appreciate the question. I think it's a really good one. You hear us talking about volume because, you know, obviously, That's the most important job to do, but it is not the opposite of increasing premiumization at the same time.

Great. Thank you.

Our last question today will come from Chris Carey from Wells Fargo. Please go ahead. Your line is open.

Hey, thank you. I'll just wrap it up with a couple follow-ups. So, number one, Kofi, on gross margin, you said expansion for the pool year. In the prepared remarks, you did highlight, however, that gross margin compares harder in Q1. You'll be doing more couponing in Q1. Should we expect gross margins to be down year over year to start the fiscal year, then improve as couponing becomes more balanced and comps get easier? Apologies if I missed that. But that would be number one. And then second, just the recurring debate throughout the Q&A this morning has been the sales acceleration implied in the outlook. If you just think about SRM, couponing, and perhaps other items, how would you frame the relative contribution of these items to the acceleration that you're expecting in your outlook for the year? So thanks so much on those two.

Okay. Well, let me start. I would just say on Q1, you know, I'm not prepared to get too much more detailed than I already have been, which is effectively we'd expect the comparison Sales, Jeff mentioned the price mix comparison component of that, obviously. And then profit compared, operating profit compared to the same quarter prior year will be a net headwind. So we do expect the complexion of our Q1 to be lower than the subsequent quarters. I'm not going to get too much more detailed below that. Obviously, I think implied in our guidance and our expectations is that we're going to use all the levers of our SRM toolkit. To the point, there's always a lot of focus on the price component of that and certainly That is important in this environment, but I think we are using everything from trade optimization to mix. We'll be front and center and focus as we're pulling the levers of SRM. Obviously, as we've worked through this year, it's been clear prices and that price mix has been less of a driver of sales as we've lapped all the pricing from the prior year. But we would expect... to continue to use SRM toolkit in its full totality next year. I can't get too much more specific about the components or the complexion at this point.

Okay, thank you.

Okay, I think we'll go ahead and wrap it up there. Appreciate everyone's good questions and time and attention. And as always, we're available for follow-ups throughout the day if you have more questions that you need to get get to us. So, appreciate the time today and we look forward to catching up soon.

This concludes today's conference call. Thank you for your participation. You may now disconnect.